As Sobha fails, Rs 8,000 cr QIPs hang in balance

Sobha Developers’ failure to push its qualified institutional placement (QIP) through may have muddied the waters for others looking to raise money through that route for some time to come.

A host of real estate players are in the queue to raise money from the equity markets, including Delhi-based Parsvnath, Omaxe and Ansal API, Mumbai’s HDIL and Peninsula Land and Bangalore’s Puravankara Group.

Together, these players intend to raise a whopping Rs 8,000 crore.
Bangalore-based Sobha, which had opened its QIP on June 18, finally called it off late on June 22.

Poor investor response was to blame. “Sobha received very small commitment from buyers, which was not even close to 50%, so they called it off,” a source said.

The company was looking to raise Rs 600 crore through the QIP route despite having shareholder approval to raise Rs 1,500 crore.
The company has net debt of Rs 1,900 crore.

“Net debt should remain unchanged at Rs 1,900 crore over March 2009 to March 2012,” Anand Agarwal, research analyst with Credit Suisse, said in a June 23 report. “Even if it can raise half this amount, it would substantially lower the company’s gearing and reduce the interest expense in future years.”

An SMS sent to Sobha managing director JC Sharma remained unanswered at the time of this report going to press.

Sobha’s is the first realty QIP to have come a cropper.

Two earlier attempts, by Unitech and Indiabulls Real Estate, had proven successful, which encouraged others to explore that option.

But looking at the fate Sobha’s QIP has met, others are bound to be chary, and left more desperate —- their need for money has not subsided and investors are turning away faster than expected.
Real estate developers have been in trouble since funds dried up from the market following the collapse of Lehman Brothers and the economic slowdown made it more difficult for them to sell their products.

“Fundamentally, companies coming into the market and raising money through QIP wouldn’t have functioned for a longer period of time. They need to clear the end product. Getting bulk money from external sources can’t bail them out every time; they need to raise money from their core business, which is real estate,” a senior analyst covering the sector said.

Another analyst said, looking at the market rally, the developers were already planning to increase property prices. “But if they don’t cut prices, they wouldn’t be able to improve their operating margins.”